Unfortunately the boomers needed to anticipate these untenable support ratios looming in their old age and saved aggressively in their working years be delaying pre-retirement consumption. But what we see differs, what we observe today is inadequate retirement savings.

Serious problems arise when countries have become so indebted that they are unable to raise debt to bail out retirees who have, by and large, undersaved, says Mr. Hsu.

In Canada versus the U.S., the Canadian Pension Plan is relatively strong and both the Liberal and NDP want to expand it. The Conservatives are not as committed to a “big CPP” beyond a modest enhancement of the system.

The feeling by some specialists is that once the interest rate moves back to their historical levels, Canadians will be able to save more, borrow less, and buy annuities with much better pay outs.

For the self-employed and workers in small businesses they made need more help setting up employer pensions resembling those enjoyed by employees in large corporations and government.

The Conservatives prefer a private-sector, market-oriented defined-contribution pension model that will be managed by the nation’s banks, fund companies and insurance companies. It’s called pooled retirement pension plan, or PRPP.

If this is the case, we as Canadians, and in particular, the Baby Boomers, need to make sure that those chosen to manage DO NOT charge their exorbitant fees. That makes me angry!

If you are about to retire you really need to sit down and see where you are at. If the Conservatives put this plan into place we will see how it impacts the Baby Boomers. In the meantime… prepare, keep on working if you need to and make smart, educated decisions.

Tags: Baby Boomers, Hr. Hsu, Pension Plans for Baby Boomers, workampers

Whether it is a person or country we all have lessons to learn. Awareness is the key to growth. When our lessons are not learned we continue to experience them until we sit back, take accountability and responsibility and make different choices. Lesson learned.

As I have said, the world is in a financial mess. Choices have been made in the past which we are now seeing the result of; Cause and Effect.

It is astounding to me that the U.S. has taken the stand that it has in it’s most vulnerable state. The U.S. is in crisis yet when it needs to come together it refuses. It behaves like a couple quibbling about the need to be right. Right and wrong — it never solves anything. I always like to work to a win/win.

Everyone wants to blame Obama for the state they are in. This crisis has been the result of 20+ years of government and in particular, George Bush Jr. His decisions are what you are feeling right now.

So imagine the U.S. is your child what financial advice would you give it??

There was a great article in the National Post, written by Jonathan Chevreau. His tag line says, “Manage money better than Washington did?.

If my child had accumulated credit card debt, for instance, the last thing I would allow is for him/her to go to the bank and extend their credit so “it appears” that they are ok; raising their credit limit is not an option for all it does is allow my child to get into more debt. That is exactly what the U.S. did. It extended it’s credit. This is a bad decision and one that cannot be sustained. Debt still needs to be paid off and the more debt you have the more interest you will pay.

So what would I do? I would have my child sit down and look at what they are spending their money on. We would look at how much money they bring in and after tax, what is left to spend. You cannot spend more than you have and if you do, this can only be sustained for so long. I would figure out a plan to reduce their debt and more importantly the amount of interest they pay. Credit cards carrying around a 19% interest rate. If you are just paying off the interest then you are not even getting to the principal, the original amount owed.

For those that own homes, buy within your means and accelerate your payments so that you pay this off quicker. We pay our mortgages in Canada with after-tax dollars. Therefore for every dollar that you pay you need to earn two dollars.

There is always help and you are never too far along in your debt. Consider your options. For some it may be declaring bankruptcy which carries with it penalties – this will be on your financial record for 7 years. You will likely not be able to have a credit card. What you can do is use the pre-paid ones and then slowly build up your credit again.

The U.S. was able to extend it’s credit because as a country the interest it pays is less than that of a credit card. Regardless, the people of the U.S. better start coming together. There have been talk of raising taxes for the wealthy. Money has to come from somewhere. For many years the rich have been able to get away with paying little to no taxes. At what price are you prepared to let your country go down the tube? Look at what is happening in Greece, Italy, Portugal, Spain and Ireland?? In Greece paying taxes was an option and now the country is in huge financial trouble.

Now, the markets have plummeted due to fear. We have the ability to turn this around just as we have had the ability to cause this financial mess. Life is all about choices. Better choices need to be made!

Stop blaming and take responsibility for your own finances. That is where we must begin. Then force corporations and countries to do the same for they are just the collection of people.

The time is now!

Tags: being financially responsible, credit card debt, financial markets, jonathan chevreau, National Post

I found this ‘reply’ in my Reader’s Digest magazine and I wanted to share it with you.

This response is by Jim Burnett from Kitchener who was responding to an article initially written. Here is what he had to say,”Contrary to what’s suggested in the article, The Latte Lie (Dollars & Sense, April ’11), the concept of getting rich by dropping those extras is bang on. By taking our lunches to work and coffee to work, my wife and I save over $4000 a year. While doing the right thing with “big” costs is a good thing, you do need to take care of all expenses.

Ask any doctor how to lose weight. He or she will tell you to write down what you ate, and that every calorie counts. Finances are no different. Being rich isn’t about making tons of money; it’s about maximizing the gap between what you make and what you spend.”

I love this message for it demonstrates an understanding of financial literacy. There are levels to literacy. There are those that cannot read at all and must begin at the beginning with sounds and phonetics and then there are those that learned the very basics and go through life using this to “get by”. Others, have the luxury and/or push themselves to fully read at a level about the average norm (maybe grade 3-5).

By writing everything down for one month you will really see where all your money is going — to every cent. It is daunting and eye opening at the same time for you really get a sense of how you spend your money. It is a choice of course and for those that continue to spend on coffees, or lunches or whatever, that’s ok. Please keep in mind if you are not in the luxurious state of freely spending and you do want to cut expenses, this is a great place to start. You do not have to go cold turkey so to speak. You can decide that you will bring a lunch and go out only one time per/week or every other week. Same goes for the lattes and coffees.

Be conscious, aware and make good financial decisions for yourself.

Tags: financial literacy, good financial choices, how to save money

With the markets being so volatile in the last little while people are more skeptical than ever. The skepticism really stems from fear – will this person know how to invest my money well and will I get a good return (as per the market)? The only way to reduce fear is to educate yourself and become aware. This is true for all parties – those giving their money to the investor and the one investing.

In the article, “Standards to be set for financial planners”, written by Jonathan Chevreau, National Post, June 1, 2011, it states that about 40,000 to 60,000 financial sales people hold themselves out as financial planners even though they lack the CFP or RFP (designations).

How do you counter this? Five financial planning organizations have created a national coalition to set firm guidelines for anyone wishing to call themselves a financial planner. Why I like this is that it is a checks and balance by those in the industry. These financial planners have worked hard for their designations and one person, who lacks the know-how,education and experience, can dilute that in the eyes of the consumer by his/her actions.

In past, despite efforts, there have bee no requirements for qualifications or professional oversight. Until now, only Quebec has regulated this. The Institut quebecois de planification financiere (IQPF) has a diploma as well you are required to have a permit from the regulator, Autorite des marches financiers or AMF which must be renewed yearly. Without both, Quebecers cannot call themselves Financial Planner, or anything that sounds close to that.

In other provinces, the closest to a required designation is the CFP (Certified Financial Planner) overseen by the Financial Planning Standards Council (FPSC). A runner up is the RFP or Registered Financial Planner from the Institute of Advanced Financial Planners. Both the FPSC and LAFP are coalition members.

The other two are The Financial Advisors Association of Canada and the Canadian Institute of Financial Planners (CIFP).

The issue is that while 18,000 people have their CFP designation another 40,000-60,000 people do not. The coalition wants to change this. The model for the Coalition is a practice that has long been established in other professions such as law, medicine and accounting. The feeling is that financial planners need to be held to similar standards- make them accountable and responsible for their choices and actions. Greg Pollock, Advocis president states, “until Canada raises the bar on standards for financial planners the public will not be amply protected from unqualified individuals who claim to be qualified when they are not.”

It’s still early days but the Coalition is creating a common set of national standards aimed at protecting consumers. The first step is declaring their statement of principles which states, those wishing to be financial planners will have to meet professional standards for education, experience, examination, ethics and professional duty of care, and be accountable to professional oversight.

This will allow the average person to cipher through those that know what they are talking about and have the preferred designation and those that claim and do not.

One comment I do have is that I hope the checks in balance that they put in place are independent. In other words, having dealt with lawyers, there have been times when I wanted to call the Law Society and I was told don’t bother because the person I want to complain about yields too much power and nothing will be done. Basically, the lawyers watch out for one another – same with doctor’s and same with accountants.

The one difference I see is that the qualified “Financial Planner” is as eager to rid of the “fakes” as the consumer is. I will support this endeavour. I will also like to see it go one step further and while designation is important that all financial planners be held accountable for their actions.

Let’s see what happens in the near future. Remember, it is us the people who are giving them our money, the ones in power!

Tags: CFP, designation, financial planner, national coalition for financial planners, RFP

I recently read the article, Student loans a hard less in the National Post, financial section, Saturday, June 4th, 2011 written by Mary Teresa Bitti.

She talked about the plight facing our student market, both today and in the future. I will summarize the article for you. I will then focus on one suggestion by another author, Patricia Lovett-Reid, who wrote the article the same day, side-by-side, which says, “Do a cost-benefit analysis of your education“. I will first summarize the issues and then present ways you can potentially avoid this.

Summary of Issues:
Nearly two million Canadians have students loans. That debt is now worth about $20 billion, including federal and provincial loans as well as personal debt in the form of credit cards, family loans and lines of credit, all used to finance post-secondary education. That number is only set to grow as student loans owed to the government of Canada alone increase by $1.2 million a day. At that same time, the amount of unrecoverable student-loan debt now sits at $149.5 million.

According to David Molenhuis, chairman of the Canadian Federation of Students in Ottawa, states, “People are finding it more difficult to make payments, budgets are becoming more strained and we are seeing more reliance on food banks and the use of emergency bursaries offered by student unions.”

He says that “we have an entire generation of people who now more than ever have to complete some form of post-secondary education just to get a job interview, with more than 70% of all new jobs requiring some degree or diploma. We are on the verge of bankrupting a generation before they even enter the workplace.”

One problem is the dramatic increase in tuition fees and increase in borrowing rates. The number of those borrowing will grow due to young people opting to stay in school longer and continue their education due in part to a tough job market.

By 2009 the average debt university graduates was $26,680.

What is the Answer?
In order to be proactive, as the parent and/or future student making the decision you need to be aware and plan a path and finally, ask yourself, “how much will this cost me?”. This path will take twists and turns so be flexible. This will be more of a guide.

Approximately 75% of a graduating high school class will go on to university. But when asked how many of those students have talked with their parents about how they are going to pay for their education, many of those students had no response. The students know that there is a definite competitive advantage for those graduating from a post-secondary institution so much so that the difference in earning between a college/university and high school graduate was 19.3% for men and 20.2% for women.

One of the barriers to post-secondary education is the upfront cost. For those with “just borns” or very young children, RESPs are an excellent savings vehicle for this as the federal government’s Canada Education Savings Grant provides an incentive of up to $7,200.

Question: What happens to those high school students who have every intention of getting a post-secondary education but no plans of how to pay for it?

The decision-making process on whether to attend post-secondary requires the same discipline we apply to investing: Undertake a risk/return assessment.

Students and their parents need to start with an honest conversation about the value of the education weighed against the potential debt:
* How much is too much?
* When there are multiple degrees involved, at what point does the cost of education outweigh the potential return on investment?

The author quotes Stephen Covey from his book, The 7 Habits of Highly Successful People, “begin with the end in mind”.

Students and parents need to ask:
* What is the goal?
* Do potential students need a university degree to pursue their passion, or would a technical diploma be just as useful?
* Can the goal be met while living at home instead of living on campus?
* Are there scholarships or bursaries available to help with funding?
* Would a gap year help to finance costs?

PLAN A PATH, FOLLOW IT BACK TO THE BEGINNING AND THEN ASK, “HOW MUCH THIS COST FOR ME?”

Finally, looking critically at how the debt will be managed is key. Yes, education is good debt, but it is still debt and needs to be managed and carried.

This should be the first priority for a student upon graduation – dealing with your debt. The same premise that works for us when we invest – compounding interest, WORKS AGAINST US WHEN WE OWE MONEY AND HAVE DEBT. Left unchecked, it can take decades to pay off student debt which can impact obtaining additional credit in the future: home loan, line of credit, increase in credit card and so on!

Note, only those qualifying student loans received under federal and provincial government programs can be claimed as a deduction on their tax return – this is NOT SO for personal loans or line of credit. A debt is a debt and remains on your personal balance sheet.

While some argue that it is not imperative to retire your student loan as soon as you can I disagree. Retiring this shows that you have taken your accountability and responsibility to get rid of debt so that you can begin to create your net worth. For those who want to risk investing their money to get a higher return than the interest, take a chance that this can reverse at any time. Just look at the U.S. housing market. People took on tremendous debt to buy homes that they believed will grow in value and the money owing will be less. Well, the market collapsed and many people owed more than the value of their home. Is the risk worth it?

Take the time to make a critical analysis to ensure the right choice for you is made based on the student’s long-term goal and ability to retire the associated debt.

Going back to the other article, is says that Canada does not have a national vision for its post-secondary education system. We need to take back our power and make choices that force each one of us to be accountable and responsible. Right now the government loans are at 8%, much above the current lending rate. Do not put yourself in a compromised position and one that will lead to crippling compounding debt. Graduation should be a time for the graduating student to begin his/her life and create their individual wealth.

Sit down, ask questions, evaluate, and then make your decision.

Good luck!

Tags: cost-benefit analysis, debt payment, post-secondary education, provincial and federal student programs, risk analysis, student debt

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